Q2 2026 Turk Telekomunikasyon AS Earnings Call
Speaker #1: gentlemen, thank you for standing by. I'm Paulina Yukorsko, operator. Welcome and thank you for joining the Turk Telekom Conference Call and live webcast to present and discuss the second quarter 2026 and financial and operational results.
Speaker #1: All participants will have been listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone.
Speaker #1: We are here with the management team and today's speaker, Isomer Karademir, CFO. Before starting, I kindly remind you to review the disclaimer on the earnings presentation.
Speaker #1: Now I would like to turn the conference over to Mr. Omer Karademir, sir, you may now proceed.
Speaker #2: Thank you, Paulina, and hello everyone. This is Omer Karademir, Turk Telekom CFO. Welcome to our 2026 second quarter results conference call. Thank you for joining us today.
Speaker #2: Let's go to slide number three. Financial and operational overview slide. First, I will start with a quick update on the quarter-end markets. Overall, as Turk Telekom Group, we successfully closed the period with strong revenue growth and solid profitability despite global geopolitical tensions and macro impacts.
Speaker #2: Building on this strong first half, we are excited about the second half and full-year growth prospects for our revenue and net profit. As you all know, geopolitical tensions continued to impact global markets, resulting in higher energy prices and inflation risks.
Speaker #2: US fed left its policy rate unchanged at its April and June meetings. In Türkiye, annual CPI rose to 32.6% in May, before easing to 31.8% in July.
Speaker #2: Central bank kept its policy rate unchanged at 37%. Year-end inflation expectations rose to 29.2% in July 2026, market participants survey. In this volatile environment, as Turk Telekom Group, we remain focused on sustaining our strong operational and financial performance.
Speaker #2: Through our disciplined and proactive approach on the mobile business side, following the nationwide launch of 5G in Türkiye on April 1st, we introduced 5G to our subscribers with enriched tariff options. Rational competition continued in the mobile sector in the second quarter, and operators implemented price revisions in April and July.
Speaker #2: On the fixed internet business side, we introduced new prices in retail segment in June and in the wholesale segment in July. Now, on the group financial results, consolidated revenues increased by 9% to 73 billion Turkish lira.
Speaker #2: Excluding the effective accounting impact, revenue growth was 6%. EBITDA grew by 5% to 29.4 billion TL with 40.4% EBITDA margin. As you know, effective revenues are investment-driven and have relatively lower margin.
Speaker #2: In Q2, strong growth in effective revenues impacted EBITDA margin. Excluding effective impact, our EBITDA margin is 43.3%. EBITDA margin percentage expanded by 60 basis points year-on-year in the first half.
Speaker #2: We recorded 6 billion TL net profit in the quarter. It declined 7% year-on-year and impacted by our long-term 5G fiber and license investments. Capex excluding solar investments and license to that, 23 billion TL.
Speaker #2: It was higher in year-on-year terms due to 5G rollout and strong progress in fiber investments. On November 3, cash flows to that, 3.9 billion TL.
Speaker #2: This figure indicated a decline from 9.4 billion TL in second quarter of last year mostly as a result of higher capex. Net leverage remained flat in Q1Q basis and stood at one time compared to 0.6 times at 2025 year-end.
Speaker #2: In summary, I want to emphasize that these results once again demonstrate the strength of our diversified business model and disciplined financial management. Let's go to slide number four.
Speaker #2: Our customer information. Our total subscriber base reached almost 58 million with 455,000 net additions Q1Q. Excluding 125,000 loss in the fixed voice segment, quarterly net additions were 580,000.
Speaker #2: Fixed
Speaker #1: In portfolios, second question also: our total debt didn’t change. Between Q1 and Q2, it is flat. That also— I hope this level of debt ends after these license payments.
Speaker #3: ICT solutions recorded significant growth supported by new projects. Won by our subsidiary Innowa. Moving on to EBITDA side, direct costs rose 11% year-on-year. Commercial costs rose 43%, mainly due to one-off cost increases while other costs remained almost flat year-on-year.
Speaker #3: Increase in commercial costs was driven by one-off spending in sales and corporate communication to support 5G and sales and distribution channel. We can expect these costs to moderate in the second half.
Speaker #3: Within other costs, network expense increased by 22% year-on-year on higher technology maintenance and repair cost. 5% year-on-year decline in personal costs can be explained by the reduction in headcount at our call center subsidiary due to project completions in the second half of 2025.
Speaker #3: The decline in interconnection costs was driven by contracting international voice revenues. EBITDA increases by 5% year-on-year to 29.4 billion TL. EBITDA margin declined by 170 basis points year-on-year to 40.4%.
Speaker #3: Excluding the effectual accounting impact, the EBITDA margin realized as 43.3%. Coming to our net profit slide. Net financial expense increased year-on-year and quarterly impacted by 5G and concession-related unrealized ethics hedge and discount expenses.
Speaker #3: Hedge expenses were also impacted by increase in average hedge cost, impacted by volatility in the global markets since the end of February. We booked 423 million TL net interest expense in the second quarter, compared to 705 million TL net interest income in the first quarter, as we made a payment of 1.1 million USD in the first quarter regarding 5G and concession renewal.
Speaker #3: Monetary gain increased by 8% Q on Q to 16 billion TL. Despite the inflation rate being lower compared to the previous quarter, driven by the fact that the concession asset was inflation adjusted for one month in Q1 26 versus three months in Q2 26.
Speaker #3: As a result, we recorded net income of 6 billion TL for the period. Let's go to next slide, number 9, to review our CAPEX numbers.
Speaker #3: CAPEX spending rose to 23 billion TL in the second quarter compared with 17 billion TL of last year on the back of 5G rollout expenditures and strong progress in fiber investments.
Speaker #3: Regarding CAPEX breakdown, fixed line CAPEX, especially fiber excess and core network investments, has 51% weight in total. 23% of spending went to mobile while another 15% went to IT and project investments, and the remaining 11% for other investments.
Speaker #3: In summary, our CAPEX intensity for the first half realized as 29.1%. Moving on to slide number 10, you can see our debt profile. Tur Telekom Group's cash and cash equivalents total 25.6 billion TL.
Speaker #1: Ladies and gentlemen, thank you for standing by. I'm Paulina Yukorsko, operator. Welcome, and thank you for joining the Turk Telecom Conference call and live webcast to present the discussed the second quarter 2026 and financial and operational results.
Speaker #3: The effects exposure included US dollar equivalents of 3.2 billion of effects denominated debt, 2.8 billion concession and mobile license liabilities, 3.4 billion of total hedge position, and 99 million of hard currency cash.
Speaker #1: We are here with the management team and today's speaker, Isomer Karademir, CFO. Before starting, I kindly remind you to review the disclaimer on the earnings presentation.
Speaker #1: Now, I would like to turn the conference over to Mr. Omer Karademir, sir, you may now proceed.
Speaker #3: Net debt over EBITDA increased to one time from 0.6 times as of 2025 end on the back of 5G and concession renewal payments. Net debt EBITDA remained flat on Q on Q basis.
Speaker #2: Thank you, Paulina, and hello everyone. This is Omer Karademir, Turk Telecom CFO. Welcome to our 2026 second quarter results conference call. Thank you for joining us today.
Speaker #2: let's go to slide number 3. Financial and operational overview slide. First, I will start with a quick update on the quarter-end markets. Overall, as Turk Telecom Group, we successfully closed the period with strong revenue growth and solid profitability despite global geopolitical tensions and macro impacts.
Speaker #3: In January, we paid the first installment of 5G license 365 million USD plus 219 million USD as VAT, and the VAT amount of concession extension worth of 500 million USD by the end of the year.
Speaker #2: Building on this strong first half, we are excited about the second half and full-year growth prospects for our revenue and net profit. As you all know, geopolitical tensions continued to impact global markets, resulting in higher energy prices and inflation risks.
Speaker #3: We will pay the second installment of 5G license and the first installment of concession extension the VAT payments will be net of. I want to highlight that our increased effects liabilities are driven by long-term investment in 5G spectrum and concessions.
Speaker #2: U.S. Fed left its policy rate unchanged at its April and June meetings. in Türkiye, annual CPI rose to 32.6% in May, before easing to 31.31.8% in July.
Speaker #3: This future payments are extended over a long-term horizon until 2035. And all settlements will be made in Turkish Lira equivalents. Additionally, we actively mitigate our currency risk exposure through targeted hedge.
Speaker #2: Central bank kept its policy rate unchanged at 37.0%. year-end inflation expectations rose to 29.2% in July 2026, markets participants survey. In this volatile environment, as Turk Telecom Group, we remain focused on sustaining our strong operational and financial performance.
Speaker #3: Last but not least, concession and 5G assets are revalued under inflation accounting and hence creates monetary gains which, as a result, balance P&L impact overall.
Speaker #3: We are now on slide number 11 where we provide update on our cash flow and effects exposure. We recorded 2.4 billion USD short effects position compared to 102 million USD as of year-end due to booking of 2.8 billion USD 5G and concession renewal liabilities.
Speaker #2: Through our disciplined and proactive approach, on the mobile business side, following the nationwide launch of 5G in Türkiye on April 1, we introduced 5G to our subscribers with enriched tariff options: regional competition continued in the mobile sector in the second quarter.
Speaker #2: operators implemented price revisions in Apple in July. On the fixed internet business side, we introduced new prices in retail segment in June and in the wholesale segment in July.
Speaker #3: Excluding those payments, our net effects long position is positive 331 million USD. Finally, we generated 4 billion TL of unlevered free cash flow in Q2 compared to 9 billion TL in the same period of last year.
Speaker #2: Now, on the group financial results, consolidated revenues increased by 9.0% to 73 billion. Excluding the effectual accounting impact, revenue growth was 6.0%. EBITDA grew by 5.0% to 29.4 billion TL with 40.4% EBITDA margin.
Speaker #3: Annual decline is mostly due to higher CAPEX spending for 5G rollout and fiber investments. Moving on slide number 12, we provide update on 2026 full year guidance.
Speaker #2: As you know, effectual revenues are investment-driven and have relatively lower margin. In Q2, strong growth in effectual revenues impacted EBITDA margin. Excluding effectual impact, our EBITDA margin is 43.3%.
Speaker #3: In first half year, our operational revenues were realized in line with our expectations in nominal terms. However, real growth impacted by higher inflation. As a result of our actions in pricing and growing business, especially in ICT, we expect the annual operational revenue growth to accelerate in the second half of the year.
Speaker #2: EBITDA margin percentage expanded by 60 basis points year-on-year in the first half. We recorded 6 billion TL net profits in the quarter. It declined 7.0% year-on-year and impacted by our long-term 5G fiber and license investments.
Speaker #3: Hence, we expect to finish the year at 8% real revenue growth. Our first half EBITDA margin increased by 0.6 percentage points year-on-year to 41.3%.
Speaker #2: CAPEX excluding solar investments and license to that 23 billion TL. It was higher in year-on-year terms due to due to 5G rollout and strong progress in fiber investments.
Speaker #3: Remaining within our guidance range of 41% to 42%, we maintain our guidance on the EBITDA margin. Considering the pace of progress in our fixed line investments as of the first half of the year and macro and inflation impacts, we expect our full-year CAPEX intensity to be realized at 34%.
Speaker #2: Unlevered free cash flows to that 3.9 billion TL. This figure indicated a decline from 9.4 billion TL in second quarter of last year mostly as a result of higher CAPEX.
Speaker #3: At the upper end of our 33 to 34% previous guidance range. In summary, we are confident about our revenue growth, EBITDA margin, and investment intensity outlook.
Speaker #2: Net leverage remained flat in Q1 Q basis and stood at one time compared to 0.6 times at 2025 year-end. In summary, I want to emphasize that these results, once again, demonstrate the strength of our diversified business model and disciplined financial management.
Speaker #3: And excited about the second half growth potential. This concludes my presentation. Thank you for listening. Now we can open up the QA session.
Speaker #2: Let's go to slide number 4. Our customer information. Our total subscriber base reached almost 58 million, with 455,000 net additions Q1 Q. Excluding 125,000 loss in the fixed voice segment, quarterly net additions were 580,000.
Speaker #1: Ladies and gentlemen, have the family will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on the telephone.
Speaker #1: If you wish to remove yourself from the question queue, you may press star two. Please use your headset when asking your question for better quality.
Speaker #1: Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question is from the line of Mehdi Singh with HSBC.
Speaker #2: Fixed broadband subscribers declined by 24,000 Q1 Q to 15.4 million. Retail broadband subscriber base expanded by 28,000 Q1 Q, thanks to our continuous efforts to improve our analytical skills, our retail churn rate for the second quarter was the lowest recorded in the post-pandemic period.
Speaker #1: Please go ahead.
Speaker #2: Yes, hi. Thanks a lot for taking my question. I have three questions if I can ask. The first question is on the revenue performance in mobile decline of around 2% in the quarter.
Speaker #2: So I was wondering what is the driver behind that and is that a trend we should expect in the coming quarter as well? So that's the first question.
Speaker #2: Mobile segment added 539,000 subscribers, on net basis. Pushing up the total base to 32.7 million. Activation and churn volumes were lower, lower in year-on-year basis driven by rational competitive environment.
Speaker #2: Second question is on the guidance. Given that your first half growth is about 5.6% and full year guidance of around 8, so you are expecting some significant acceleration in second half.
Speaker #2: Subscriber growth remained robust with 424,000 net additions excluding 116,000 M2M additions. Let's move to slide number 5. Our fixed broadband performance. We continued our strong double-digit revenue and RP growth growth in fixed internet.
Speaker #2: If you could talk about what is driving that optimism, is it pricing or is it usage? So please if you could give some color there.
Speaker #2: And then on the commercial cost increase, if you could break it down in terms of how much is purely because of 5G and how long is that going to continue during this year?
Speaker #2: We introduced retail price revisions for new acquisitions in January and June. Subsequently, we introduced the wholesale price revision, effective from July 1. We have seen other ISPs adjusting their prices in June and July.
Speaker #2: Thank you.
Speaker #3: Thank you for the questions. First, for the revenue performance of mobile, your I want to start with your first question. The main reason behind the growth performance is coming from the macro side.
Speaker #2: Next, wholesale adjustment is to be implemented in January 2027. First half recontracting volume scored higher year-on-year despite last year's high base. RP growth remained solid at 15.0% year-on-year in second quarter.
Speaker #3: This is inflation. The inflation increased higher than our expectation, not just our company's expectation, but also the CBRTO and other actors. So that is one of the first reason for the mobile performance.
Speaker #2: Combination of solid upsell and sustained recontracting performance along with successful price implementation enabled us to maintain high growth. We expect strong RP trajectory to continue in second half of 2026.
Speaker #3: And additionally, you will remember that because of the last year's competitiveness in the market, impacted the prices in mobile market. But for at the beginning of this year, we January, it is 30%.
Speaker #2: Average package speed of our total subscriber base increased by 57.0% year-on-year to 124 megabits per second. 69.0% of our subscribers now use more than 50 megabits per second speed packets compared to 54.0% a year ago.
Speaker #3: In April, it is 13. In January, it is 30. In April, this is 13. And in July, it is 16%. And we are expecting to see their effect in second half of this year, this price revisions.
Speaker #2: Moving on to mobile performance. Slide number 6. In second quarter, we continued our mobile customer growth. However, our revenue growth impacted by higher inflation.
Speaker #2: Regional competitive environment visible by the end of 2025 prevailed in first half of 2026. Mobile number portability (MNP) market size declined both quarterly and yearly.
Speaker #3: And in our operational results, you see we are the first in M&P market and we are now at second operator in the market. So we are expecting to we are expecting in both the RP growth and revenue growth will be positive in the second half compared to the first half.
Speaker #2: Through telecom finish, second quarter, as the leader in the MNP market. On the pricing side, revisions were made in January, April, and July. Postpaid and prepaid segments added 415,000 and 124,000 subscribers respectively.
Speaker #3: The main reason is coming from the price revisions that we have taken. Since the subscriber base the spread of this price revisions will take some time in subscriber base.
Speaker #2: Ratio of postpaid subscribers in total portfolio rose points in year-on-year and reached over 80%. Mobile RP excluding M2M declined by 6.0% year-on-year in the second quarter.
Speaker #3: But second half, we will see the concrete results. About your second questions, about the revenue growth guidance, you have stated it was it is 5.6% in first half and the revised guidance is 8%.
Speaker #2: We expect our growth momentum to get there with pricing actions taken so far to enable improved real RP growth performance in second half of the year.
Speaker #3: And wondering our acceleration for the second half. Firstly, there's a base effect for the first half of the year. And the inflation realization for the first half was higher than our expectation.
Speaker #2: Okay, now we're going to slide number 8 for our group summary performance. On the revenue side, consolidated revenues expanded by 9.0% to 73 billion TL.
Speaker #2: Fixed broadband corporate data and ICT projects led this strong growth. Driven by the acceleration in fiber investments, effectual revenues rose strongly. Excluding effectual impact Q2 revenues exceeded 66 billion TL, up 6.0% year-on-year including increases of 15.0% in fixed broadband.
Speaker #3: As I stated in the in your mobile performance mobile revenue performance question, it is same for our revenue growth. The price actions not we have taken for the mobile.
Speaker #3: We have also taken for the fixed broadband. Site. In January, for the retail site, the price division is 20%. For January, for June, it is 30%.
Speaker #2: 12.0% in TV, 17.0% in corporate data, and 30.0% in other segments. Fixed internet and mobile revenues together accounted for 77.0% of operating revenue. Fixed internet made the largest contribution to growth with 2.9 billion Turkish lira higher revenues in total year-on-year.
Speaker #3: For the retail side. For the wholesale side, in July, it first of July, it was effective. It is 38%. So we will also see the impact of this price revisions in the second half of the year.
Speaker #2: Corporate data ICT solutions and equipment sales added a further 2.7 billion TL. While call center and international resource revenues declined by a combined 1.6 billion TL, mobile revenues were lower by 692 million TL.
Speaker #3: I want I I have to emphasize that the first half growth are growths are in line with our budgetary expectation. And as I stated in for the mobile sector, this pricing actions will impact the subscriber base.
Speaker #2: ICT solutions recorded significant growth supported by new projects. Won by our subsidiary Innova. Moving on to EBITDA side, direct cost rose 11.0% year-on-year. Commercial cost rose 43.0% mainly due to one-off cost increases while other costs remained almost flat year-on-year.
Speaker #3: It will take some time as you may expect. And we are expecting this actions offset negative impact of both elevated inflation and we we are confident to reach our revenue growth.
Speaker #2: Increase in commercial cost was driven by one-off spending in sales and corporate communication to support 5G and sales and distribution channel. We can expect these costs to moderate in the second half.
Speaker #3: In addition to that, for the ICT side, we have new business opportunities for the ICT project business line. We expect additional operational revenue growth from that side.
Speaker #2: Within other costs, network expense increased by 22.0% year-on-year on higher technology maintenance and repair cost. 5.0% year-on-year declined in personal cost can be explained by the reduction in headcount at our call center subsidiary due to project completions in the second half of 2025.
Speaker #3: So, we are confident in our current revenue growth guidance. And, regarding your last question about the increase in commercial costs, our year-on-year increase in commercial expenses is ₺1 billion.
Speaker #2: The decline in interconnection cost was driven by contracting international voice revenues. EBITDA increases by 5.0% year-on-year to 29.4 billion TL. EBITDA margin declined by 170 basis points year-on-year to 40.4%.
Speaker #3: The increase specific to Q2 and we are considering is as one of since the launch of 5G, the both commercial activities impacted an increase on this commercial cost.
Speaker #2: Excluding the effectual accounting impact, the EBITDA margin realized as 43.3%. Coming to our net profit. Slide. Net financial expense increased year-on-year and quarterly impacted by 5G and concession-related unrealized ethics hedge and discount expenses.
Speaker #3: To support our trading activity, both mobile and fixed. And additionally, we can say sales and distribution channel support. So we are we are not expecting this to continue in the following quarters.
Speaker #3: And we expect it to return to the normal trend. Thank you.
Speaker #2: Hedge expenses were also impacted by increase in average hedge cost, impacted by volatility in the global markets since the end of February. We booked 423 million TL net interest expense in the second quarter compared to 705 million TL net interest income in the first quarter, as we made a payment of 1.1 billion USD in the first quarter regarding 5G and concession renewal.
Speaker #1: Mr. Singh, are you finished with your question? Okay. Thank you. The next question is from the line of Evgenia Bystrova with Barclays. Please go ahead.
Speaker #2: Yes, hello. Good afternoon, and thank you very much for the presentation. I have just two questions. So, my first question: There were some news, and I think you published a press release on COP regarding a potential sale of Sukuk debt up to $1 billion.
Speaker #2: Monetary gain increased by 8.0% Q1, Q2 to 16 billion TL. Despite the inflation rate being lower compared to the previous quarter, driven by the fact that the concession asset was inflation-adjusted for one month 26 versus three months in Q2, Q2 26.
Speaker #2: Abroad, any color on that on the timing and the size and the use of the process would be very helpful. And my second question is related to COPEX on the fixed broadband side.
Speaker #2: As a result, we recorded net income of 6 billion TL for the period. Let's go to next slide, number 9, to review our CAPEX numbers.
Speaker #2: And maybe I'm just not fully understanding the reasons for the increased COPEX because when I think you announced the concession renewal the message was that they expected investments in the infrastructure will be more or less in line with the historical investments on the fixed side.
Speaker #2: CAPEX spending rose to 23 billion TL in the second quarter compared with 17 billion TL of last year on the back of 5G rollout expenditures and strong progress in fiber investments.
Speaker #2: And now we're seeing a significant increase obviously this year. So do you expect the investments to normalize in the next several years or is this like the new normal level of COPEX that we can expect going forward?
Speaker #2: Regarding CAPEX breakdown, fixed line CAPEX, especially fiber excess and core network investments, has 51.0% weight in total. 23.0% of spending went to mobile while another 15.0% went to IT and project investments, and the remaining 11.0% for other investments.
Speaker #2: Thank you.
Speaker #3: Thank you, Evgenia. For your first question regarding our possible Sukuk transaction, you know we had a financing program last year; it was a total of $1.8 billion.
Speaker #2: In summary, our CAPEX intensity for the first half realized as 29.1%. Moving on to slide number 10, you can see our debt profile. Turk Telekom Group's cash and cash equivalent total 25.6 billion TL.
Speaker #3: In order to cover our license payments of 5G and concession license, the and we have still limit for both Sukuk and Eurobonds that we have issued last year.
Speaker #2: The ethics exposure included US dollar equivalents of 3.2 billion of ethics denominated debt, 2.8 billion concession and mobile license liabilities, 3.4 billion of total hedge position, and 99 million of hard currency cash.
Speaker #3: But we are not we are not planning to tap the market for the remaining limit that we have the consent of capital market sports.
Speaker #2: Net debt over EBITDA increased to one time from 0.6 times as of 2025 end on the back of 5G and concession renewal payments. Net debt EBITDA remained flat on Q1, Q2 basis.
Speaker #3: It was 1 billion and for one year validity as you remember the transaction was 600 million US dollars. The remaining is 400 million available from that.
Speaker #2: In January, we paid the first installment of 5G license 365 million USD plus 219 million USD as VAT, and the VAT amount of concession extension worth of 500 million USD by the end of the year.
Speaker #3: But we are not planning to tap the market for this existing Sukuk, and it expires in September. So the first intention is to renew our consent from the Capital Markets Board, and it is still for $1 billion as a limit.
Speaker #2: We will pay the second installment of 5G license and the first installment of concession extension the VAT payments will be net of. I want to highlight that our increased ethics liabilities are driven by long-term investment in 5G spectrum and concessions.
Speaker #3: We are not expecting to use this whole amount the basic motivation for this financing is to cover the next year's license payments since we are covering all the payments of this year and half of the next year's license payments for 5G and concession.
Speaker #2: This future payments are extended over a long-term horizon until 2035. And all settlements will be made in Turkish Lira equivalents. Additionally, we actively mitigate our currency risk exposure through targeted hedges.
Speaker #3: So the basic motivation for this sukuk issue is to cover the next year's payments. For the size, yeah, of course, the size will be determined through the market appetite and the cost.
Speaker #2: Last but not least, concession and 5G assets are revalued under inflation accounting and hence creates monetary gains which, as a result, balance P&L impact overall.
Speaker #2: We are now on slide number 11 where we provide update on our cash flow and ethics exposure. We recorded 2.4 billion USD short ethics position compared to 102 million USD as of year-end due to duty booking of 2.8 billion USD 5G and concession renewal liabilities.
Speaker #3: These are important. We are going to we are going to look the pricing and the market appetite and this will be important for the size.
Speaker #3: And we have other alternatives. Addition to Sukuk, you know we are access to different markets. We tap the market for Eurobonds last year. We have access to gulf region and we have ECA facilities.
Speaker #2: Excluding those payments, our net ethics long position is positive 331 million USD. Finally, we generated 4 billion TL of unlevered free cash flow in Q2 compared to 9 billion TL in the same period of last year.
Speaker #3: And addition to this financing opportunities, we have also access to international financial institutions. Concretely, we are now negotiating with EBRD and ADB. As multilateral funding sources.
Speaker #2: Annual decline is mostly due to higher CAPEX spending for 5G rollout and fiber investments. Moving on slide number 12, we provide update on 2026 full-year guidance.
Speaker #2: In first half year, our operational revenues were realized in line with our expectations in nominal terms. However, real growth impacted by higher inflation. As a result of our actions in pricing and growing business, especially in ICT, we expect the annual operational the second half of the year.
Speaker #3: And we have also ability to borrow from the local market. So there are different alternatives. And we have to optimize with the cost and the investors appetite.
Speaker #3: For your second questions on COPEX spending, you know last year our COPEX intensity ratio was 29%. And our historical levels are something on 20s.
Speaker #2: Hence, we expect to finish the year at 8.0% real revenue growth. Our first half EBITDA margin increased by 0.6 percentage points year-on-year to 41.3%.
Speaker #2: Remaining within our guidance range of 41 to 42%. We maintain our guidance on the EBITDA margin. Considering the pace of progress in our fixed line investments, as of the first half of the year and macro and inflation impacts, we expect our full-year CAPEX intensity to be realized at 34.0%.
Speaker #3: We are saying that we will reach this historical levels in a period of time. But for this year, the main reasons the increase in COPEX ratio is both 5G and the renewal of concession boost this COPEX spending.
Speaker #3: So we are expecting a normalizing in future years. I mean next year or the 2028 we are expecting it to be lower than this year.
Speaker #2: At the upper end of our 33.0 to 34.0% previous guidance range. In summary, we are confident about our revenue growth, EBITDA margin, and investment intensity outlook.
Speaker #2: And excited about the second half growth potential. This concludes my presentation. Thank you for listening. Now we can open up the Q&A session.
Speaker #3: But for this year also we have 5G rollout that also increased the COPEX ratio compared to last year. And our fiber also supports mobile network.
Speaker #1: The first question is from the line of Maddy Singh with HSBC. Please go ahead.
Speaker #3: You know we are connecting our 5G bands with the fiber. So this year is an exceptional year we have to state that. Thank you.
Speaker #3: Yes, hi. Thanks a lot for taking my question. I have three questions if I can ask. The first question is on the revenue performance in mobile decline of around 2% in the quarter.
Speaker #3: So I was wondering what is the driver behind that and is that a trend we should expect in the coming quarter as well? So that's the first question.
Speaker #2: Thank you.
Speaker #1: The next question is from the line of Cemal Demirtas with ATA Invest. Please go ahead.
Speaker #3: Second question is on the guidance. Given that your first half growth is about 5.6% and full-year guidance of around 8.0, so you are expecting some significant acceleration in second half?
Speaker #2: Thank you for the presentation. My question is related to your investments and you know the license and concession fees. We see you know gradual increase in your depreciation expense side and you know as of maybe second quarter could we assume that this depreciation experience will continue to increase throughout the quarters as your spending goes?
Speaker #3: If you could talk about what is driving that optimism, is it pricing or is it usage? So please if you could give some color there.
Speaker #3: And then on the commercial cost increase, if you could break it down in terms of how much is purely because of 5G and how long is that going to continue during this year.
Speaker #2: How should we think about that? Because already in the second quarter or should we assume that all you know the costs are capitalized in second quarter and this will remain stable?
Speaker #3: Thank you.
Speaker #2: Thank you for the questions. First, for the revenue performance of mobile, your I want to start with your first question. The main reason behind the growth performance is coming from the macro side.
Speaker #2: You know I would like to understand that part. And the other question is about the financing side. These again should we assume that we had we saw the full impact of the you know the higher debt burden on your financial starting by this quarter.
Speaker #2: This is inflation. The inflation increased higher than our expectation, not just our company's expectation, but also the CBRTO and other actors. So that is one of the first reason for the mobile performance.
Speaker #2: And we could we assume similar trend in the following quarters that's the my second question. The first one is about depreciation. The second is financial expense.
Speaker #2: And the third one is what is the key topic on your side you know for the following 12 months as the top management of the company?
Speaker #2: And additionally, you will remember that because of the last year's competitiveness in the market, impacted the prices in mobile market. But for at the beginning of this year.
Speaker #2: Thank you.
Speaker #3: Thank you, Cemal Bey. For the depreciation expense, the Q2 run rate will continue. We have the full impact in Q2, so we may expect similar impacts in the following quarters.
Speaker #2: We have made price revisions. In January, it is 30%. In April, it is 13%. In January, it is 30%. In April, it is 13%.
Speaker #3: For the second quarter for your second question considering the financing side the impact of the financial expenses increased by the payment of the license fees for 5G and concession.
Speaker #2: And in July, it is 16%. And we are expecting to see their effect in second half of this year, this price revisions. And in our operational results, you see we are the first in M&P market and we are now at second operator in the market.
Speaker #3: You know we have paid with the VATs 1.1 billion in first quarter. So that's why our both financial expenses and depreciation expenses increased. The key drivers behind in financial expenses we can summarize as like as a first reason significant increase in ethics and hedging expense on both a year on year and quarter on quarter basis as I stated.
Speaker #2: So we are expecting to we are expecting in both the RP growth and revenue growth will be positive in the second half compared to the first half.
Speaker #2: The main reason is coming from the price revisions that we have taken. Since the subscriber base the spread of this price revisions will take some time in subscriber base, but second half we will see the concrete results.
Speaker #3: And the second one is the conversion of net interest income into net expense on a quarterly basis, following $1.1 billion as I stated. That's the second reason.
Speaker #2: About your second questions, about the revenue growth guidance, you have stated it was it is 5.6% in first half and the revised guidance is 8%.
Speaker #3: And as a last the discounted expenses recorded for the liabilities recognized on the balance sheet. But we expect the decline in hedging expenses in the second half of the year in line with decreasing hedging.
Speaker #2: And wondering our acceleration for the second half. Firstly, there's a base effect for the first half of the year. And the inflation realization for the first half was higher than our expectation.
Speaker #2: As I stated in the in your mobile performance mobile revenue performance question, it is same for our revenue growth. The price actions not we have taken for the mobile.
Speaker #2: We have also taken for the fixed broadband. Sites in January, for the retail site, the price division is 20%. For January, for June, it is 30%.
Speaker #2: For the retail site. For the wholesale site, in July, it first of July, it was effective. It is 38%. So we will also see the impact of this price revisions in the second half of the year.
Speaker #2: I want I have to emphasize that the first half growth are growths are in line with our budgetary expectation. And as I stated in for the mobile sector, this pricing actions will impact the subscriber base.
Speaker #2: It will take some time as you may we are expecting this actions offset negative impact of both elevated inflation and we are confident to reach our revenue growth.
Speaker #2: And in addition to that, for the ICT site, we have new business opportunities for ICT project business line. We expect the additional operational revenue growth from that site.
Speaker #2: So we are confident for our current revenue growth guidance. And your last question considering the increase in commercial cost, our year-on-year increase in commercial expenses is 1 billion Turkish lira.
Speaker #2: The increase specific to Q2 and we are considering is as one of since the launch of 5G, the both commercial activities impacted an increase on this commercial cost.
Speaker #2: To support our trading activity, both mobile and fixed. And additionally, we can say sales and distribution channel support. So we are we are not expecting this to continue in the following quarters.
Speaker #2: And we expect it return to normal trend. Thank you.
Speaker #1: Mr. Singh, are you finished with your question? Okay. Thank you. The next question is from the line of Evgenia Bystrova with Barclays. Please go ahead.
Speaker #3: Yes. Hello. Good afternoon. And thank you very much for the presentation. I have just two questions so my first question, there were some news and I think you've published like a press release on COP regarding potential sale of Sukuk debt up to 1 billion.
Speaker #3: Abroad, any color on that on the timing and the size and the use of the process would be very helpful. And my second question is related to COPEX on the fixed broadband side.
Speaker #1: We are also expecting to, expecting a decline in our borrow-to-leverage and net debt. Thank you.
Speaker #2: Thank you.
Speaker #3: And maybe I'm just not fully understanding the reasons for the increased COPEX because when I think you announced the concession renewal, the message was that they expected investments in the infrastructure will be more or less in line with the historical investments on the fixed side.
Speaker #3: The next question is from the line of Yatzin Sarihan with Yapı Kredi Yatırım. Please go ahead.
Speaker #4: Thank you for the presentation. I have one question on mobile ARPU growth. So, ARPU growth's slogan in the first quarter, and also continuity—similar pace this quarter, second quarter of this year.
Speaker #3: And now we're seeing a significant increase obviously this year. So do you expect the investments to normalize in the next several years or is this like the new normal level of COPEX that we can expect going forward?
Speaker #4: So I'm trying to understand the 5G contribution. So what will second quarter mobile ARK Group, I mean, have been excluded 5G, and if there is a contribution from the 5G, so how many points will you add to the mobile ARK Group in this quarter?
Speaker #3: Thank you.
Speaker #2: Thank you, Evgenia. For your first question considering our possible Sukuk transaction, you know we have at financing program last year as a total of 1.8 billion US dollars.
Speaker #4: Because at this point it is not Apple-to-Apple comparison because last year in the second quarter of the last year there were no 5G, and that's why I ask this question to understand the contribution of the 5G.
Speaker #4: Thank you.
Speaker #2: In order to cover our license payments of 5G and concession license, the and we have still limit for both Sukuk and Eurobonds that we have issued last year.
Speaker #1: Thank you, Yasin Bey. The negative ARK growth in first quarter and second quarter, yes, we were expecting that because of the last year's price actions.
Speaker #1: But excluding 5G, we are expecting it to recover at the end of this year. We are expecting positive ARK at the end of this year.
Speaker #2: But we are not we are not planning to tap the market for the remaining limit that we have the consent of capital markets board.
Speaker #1: For the 5G, yes, we have launched the 5G in first of April. It is still new, and the in the 5G compatible device, it is one-third of our total subscriber has this 5G compatible device.
Speaker #2: It was 1 billion and for one year validity as you remember the transaction was 600 million US dollars. The remaining is 400 million available from that.
Speaker #1: So it will take some time to see the effects of the 5G technology on the commercial side. But we are expecting that, with the 5G technology, this will contribute to our upsell potential.
Speaker #2: But we are not planning to tap the market for this existing Sukuk. And it expires in September. So the first intention to renew our consent from capital markets board and it is still for 1 billion as a limit.
Speaker #1: And we are also witnessing that an enhanced usage of data according to my view, we can expect this concrete results at the beginning of last year, we can say, actually next year, in 2027.
Speaker #2: We are not expecting to use this whole amount the basic motivation for this financing is to cover the next year's license payments since we are covering all the payments of this year and half of the next year's license payments for 5G and concession.
Speaker #1: We can expect it is still new, the adaptation of the devices are still lower, so we can expect this concrete results in with the also 5G technologies.
Speaker #2: So the basic motivation for this Sukuk issuances to cover the next year's payments. For the size, yeah, of course the size will be size will be determined through the market appetite and the cost.
Speaker #1: And the penetration with our investment in 5G, it is intense in this year. For Tur Telekom, we are intensely investing in 5G C band, so at the again at the beginning of the next year, the we are expecting an higher penetration ratios.
Speaker #2: These are important. We are going to we are going to look the pricing and the market appetite and this will be important for the size.
Speaker #1: So this will also affect and will contribute to our both ARK and revenue growth in mobile sides. Thank you.
Speaker #2: And we have other alternatives. Addition to Sukuk, you know we are access to different markets. We tap the market for Eurobonds last year. We have access to gulf region and we have ECA facilities.
Speaker #4: Thank you so much, Ömer Bey.
Speaker #3: As a reminder, if you would like to ask a question, please press star, then one, on your telephone. The next question is from the line of Amir Chomaev with Balkz Investments.
Speaker #2: And addition to this financing opportunities, we have also access to international financial institutions. Concretely, we are now negotiating with EBRD and ADB. As multilateral funding sources.
Speaker #3: Please go ahead.
Speaker #4: Hello. Thank you for your presentation. I have three questions. First of all, it's related to the balance sheet. We can see lots of fixed assets in your balance sheet, and I want to ask, like, do you consider to change the valuation way of these assets to the market valuation?
Speaker #2: And we have also ability to borrow from the local market. So there are different alternatives. And we have to optimize with the cost and the investors.
Speaker #4: And any possible sales in order to get more cash? The second question is, regarding your Tetanet, do you consider an IPO or any similar process on the Tetanet side?
Speaker #4: And the third question is: Recently, we've seen that lots of Turkey growth funds have had share buybacks. We want to ask, if you consider yourselves so cheap relative to peers, do you also consider any buyback programs and so on?
Speaker #2: Appetite. For your second questions on COPEX spending, you know last year our COPEX intensity ratio was 29%. And our historical levels are something on 20s.
Speaker #4: Thank you.
Speaker #2: We are saying that we will wish this historical levels in a period of time. But for this year, the main reasons the increase in COPEX ratio is both 5G and the renewal of concession boost this COPEX spending.
Speaker #1: Thank you, Amir. Considering the fixed assets in our balance sheet, there is no change. Maybe the assets coming from this 5G and concession license makes a huge difference compared to last year.
Speaker #2: So we are expecting a normalizing in future years. I mean next year's or the 2028, we are expecting it to be lower than this year.
Speaker #1: That could be the main difference. For this year and last year, since we have recorded both the 5G license and concession, in the first quarter there may be a difference in our balance sheet.
Speaker #2: But for this year also, we have 5G rollout. That also increased the COPEX ratio compared to last year. And our fiber also supports mobile network.
Speaker #1: For your second question, can you repeat it again?
Speaker #4: Do you consider the IPO of Tetanet? Initial public offering of Tetanet.
Speaker #2: You know we are connecting our 5G bands with the fiber. So this year is an exceptional year. We have to state that. Thank you.
Speaker #1: Please don't have that plan. We are not intending any kind of IPO for Tetanet. And for your last question, it was about the buyback, as I remember.
Speaker #3: Thank you.
Speaker #1: The next question is from the line of Jamal Demirtaz with Ata Invest. Please go ahead.
Speaker #1: We have an option always to make buybacks we have always option we think that our price is lower compared to and our leverage is also lower compared to our peers, both in in country, both global.
Speaker #4: Thank you for the presentation. My question is related to your investments and you know the license and concession fees. We see you know gradual increase in your depreciation expense side and you know as of maybe second quarter could we assume that this depreciation expense will continue to increase throughout the quarters as your spending goes?
Speaker #1: We haven't published any plan for this buyback. But we are, we are, we have also, we have always the option to do that. In the past, we did, by the way.
Speaker #4: How should we think about that? Because already in the second quarter or should we assume costs are capitalized in second quarter and this will remain stable?
Speaker #1: It was, let's say, in 2023, two some I don't remember exactly, but it will be 2023. In the past, we made, we did. So at the moment, we are not planning, but we can do that.
Speaker #4: You know I would like to understand that part. And the other question is about the financing side. These again should we assume that we had we saw the full impact of the you know the higher debt burden on your financial starting by this quarter.
Speaker #1: Anytime. Thank you.
Speaker #4: Okay. Related to the first question—so, you're expecting your assets in your balance sheet to decrease after your 5G investment. And do you consider any revaluation of the current assets?
Speaker #4: And we could we assume similar trend in the following quarters? That's my second question. The first one is about depreciation. The second is financial expense.
Speaker #4: Because maybe there are some additional advantages from this side, or no? That's my last question.
Speaker #4: And the third one is what is the key topic on your side you know for the following 12 months as the top management of the company?
Speaker #1: We are we are not seeing any revaluation the assets other than the license it is normal inflation indexation.
Speaker #4: Thank you.
Speaker #2: Thank you Jamal Bey. For the depreciation expense, Q2 run rate will continue. We have full impact in Q2. So we may expect similar impacts in the following quarters.
Speaker #4: Okay.
Speaker #1: Thank you.
Speaker #3: We have a follow-up question from Evgenia Bestova with Barclays. Please go ahead. Ms. Bestova, can you hear us?
Speaker #2: For the second quarter for your second question, considering the financing side, the impact of the financial expenses increased by the payment of the license fees for 5G and concession.
Speaker #2: Yes. Sorry. I was unmute. Thank you for the opportunity to ask a follow-up. Just a quick question on the taxes. I noticed in the cash flow statement that the income taxes increased in the first half of the year compared to last year.
Speaker #2: You know we have paid with the VATs 1.1 billion in first quarter. So that's why our both financial expenses and depreciation expenses increased. The key drivers behind in financial expenses we can summarize as like as a first reason significant increase in ethics and hedging expense on both a year on year and quarter on quarter basis as I stated.
Speaker #2: Just wanted to better understand what what could be the driver of that. Thank you.
Speaker #1: The main reason is the profit, you know. When you generate profits, the tax expenses also increase. But there is no revision in tax levels or tax rates.
Speaker #1: In the government side. So that's mainly because of the increase in our revenues and profit. Thank you.
Speaker #2: Thanks.
Speaker #2: And the second one the conversion of net interest income into net expense on a quarterly basis following 1.1 billion as I stated. That's the second reason.
Speaker #3: Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turk Telekom Management for any closing comments.
Speaker #3: Thank you.
Speaker #2: And as a last the discounted expenses recorded for the liabilities recognized on the balance sheet. But we expect the decline in hedging expenses in the second half of the year.
Speaker #1: Thank you for joining us today. Have a good evening.
Speaker #2: In line with decreasing hedging cost. Since we stated that in first quarter investor call we said that we are expecting an increase in the second quarter.
Speaker #2: Because of this geopolitical conflict it impacted the cost of hedging. And we leave the increase of this hedging cost in Q2. But for Q3 we are seeing an decline in the hedging cost.
Speaker #2: So we are expecting a lower level of hedging cost in the financial expenses side.
Speaker #4: For your last questions the key topics on our mind are data center is important. We are increasing our data center capacity. Right now we have a capacity of 50 megawatts.
Speaker #4: 50. And our need data center will be planning to build in Ankara. It is 82 megawatts. Bigger than our almost 1.5 times bigger than our existing data center capacity.
Speaker #4: And it will be in we are expecting it to be operational in a couple of years. And we want to increase our size on this data center business.
Speaker #4: The artificial intelligence is also important. We are trying to use in our business the solution of artificial intelligence. Both the commercial side and investment side.
Speaker #4: So that is important. And as a last we are also prioritizing our cost optimization. Since we have commitments for the 5G and concession part we try to make the cost optimization.
Speaker #4: And I want to make an addition for your second question also. Our total debt didn't change between Q1 and Q2. It is flat. That also that means our cash generating business helps us to hold this level of debt.
Speaker #4: And after these license payments we are also expecting to expecting a decline in our both the leverage and the net debt. Thank you. Thank you.
Speaker #1: The next question is from the line of Yasin Sarihan with YAPI Credit Yatirin. Please go ahead.
Speaker #5: Thank you for the presentation. I have one question. And on mobile ARK Group. So ARK Group's slogan in first quarter and also continue at a similar pace this quarter second quarter of this year.
Speaker #5: So I'm trying to understand the 5G contribution. So what will second quarter mobile ARK 5G and if there is a contribution from the 5G so how many points will you add to the mobile ARK Group in this quarter?
Speaker #5: Because at this point it is not to Apple to Apple comparison because last year in the second quarter of the last year there were no 5G and that's why I ask this question to understand the contribution of the 5G.
Speaker #5: Thank you.
Speaker #4: Thank you Yasin Bey. The negative ARK Group in first quarter and second quarter yes we were expecting that because of the last year's price actions.
Speaker #4: But excluding 5G we are expecting it to recover at the end of this year. We are expecting positive ARK at the end of this year.
Speaker #4: For the 5G yes we have launched the 5G in first of April. It is still new and in the 5G compatible device it is one third of our total subscriber has this 5G compatible device.
Speaker #4: So it will take some time to see the effects of the 5G technology in the commercial side. But we are expecting in upsells with the 5G technology this will contribute to our upsell potential.
Speaker #4: And we are also witnessing that an enhanced usage of data according to my view we can expect this concrete results at the beginning of last year we can say next year in 2027.
Speaker #4: We can expect it is still new. The adaptation of the devices are still lower. So we can expect this concrete results in with the also 5G technologies.
Speaker #4: And the penetration with our investment in 5G it is intense in this year. For Turtelecom we are intensely investing in 5G C-band. So at the again at the beginning of the next year we are expecting an higher penetration ratios.
Speaker #4: So this will and will contribute to our both ARK and revenue growth in mobile side. Thank you.
Speaker #5: Okay. Thank you so much Omer Bey.
Speaker #1: The next question is from the line of Amir Chomaev with Balqs Investments. Please go ahead.
Speaker #5: Hello. Thank you for your presentation. I have three questions. First of all is related to the balance sheet. We can see lots of fixed assets in your balance sheet and I want to ask like do you consider to change the valuation way of this asset.
Speaker #5: The market valuation and any possible sales in order to get more cash. The second question is like to your Tetanet. Do you consider it the IPO or any similar process in the Tetanet side?
Speaker #5: And the third question is like recently we see that lots of Turtle funds have share buybacks. And we want to ask like if you are so cheap related to peers and so on do you consider any buyback programs and so on.
Speaker #5: Thank you.
Speaker #4: Thank you Amir. Considering the fixed assets in our balance sheet there is no change. Maybe the assets coming from this 5G and concession license makes a huge difference compared to last year.
Speaker #4: That could be the main difference. For this year and last year since we have recorded both the 5G license and concession in first quarter it may get big difference in our balance sheet.
Speaker #4: For your second question can you repeat it again?
Speaker #5: Do you consider the IPO of Tetanet? Initial public offering of Tetanet.
Speaker #4: It won't have that plan. We are not intending any kind of IPO for Tetanet. And for your last question it was about the buyback as I remember.
Speaker #4: We have an option always to make buybacks we have always option we think that our price is lower compared to and our leverage is also lower compared to our peers both in country but haven't published any plan for this buyback.
Speaker #4: But we have also we have always option to that. In the past we did by the way it was let's say three I guess in 2023 to some I don't remember exactly but it will be 2023 in the past we made we did so at the moment we are not planning but we can do that anytime.
Speaker #4: Thank you.
Speaker #5: Okay. Related to the first question so you are expecting your assets in your balance sheet decrease after your 5G investment and do you consider any revaluation of the current assets because maybe there is some additional advantages from this side or no?
Speaker #5: That's my last question.
Speaker #4: We are not seeing any revaluation the assets other than the license. It is normal inflation indexation. Thank you.
Speaker #1: We have a follow-up question from Evgenia Bestrova with Barclays. Please go ahead. Ms. Bestrova, can you hear us?
Speaker #2: Yes. Sorry. I was unmute. Thank you for the opportunity to ask a follow-up. Just a quick question on the taxes. I noticed in the cash flow statement that the income taxes increased in the first half of the year compared to last year.
Speaker #2: Just wanted to better understand what could be the driver of that. Thank you.
Speaker #4: The main reason is the profit when we generate profits the tax expenses also increase. But there is no revision in tax level tax rates.
Speaker #4: In the government side. So that's mainly because of the increase in our revenues and profits. Thank you.
Speaker #2: Thanks.
Speaker #1: Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turk Telecom management for any closing comments.
Speaker #1: Thank you.
